When I bring up the topic of tracking profitability to spa owners, I can usually sense trepidation. You’d rather clean toilets than discuss, analyze or crunch numbers for your business, right?
It's because you were let loose to open a business very little (or any!) financial planning or managing experience. And to add to the mess, you probably spent a crap ton of money you didn’t have and are madly trying to figure out how to get more clients in the door so you can pay your bills.
And maybe…just maybe, there’ll be some money left over at the end of the month for you to take home. But it's never consistent.
How do you get a handle on the money in your spa business?
Cash Flow Forecasting
Cash flow forecasting is just another term for figuring out your sales and expense projections for the upcoming months.
It’s the actual cash that flows into and out of your business. It’s when payments are deposited & withdrawn from your bank account.
It’s pretty simple really.
Why do you need to learn how to cash flow forecast?
Most spas spend zero time with spreadsheets and a calculator (if you’re one of the few that do, bravo!!!) rather, they crunch out a few painful numbers on paper and proceed to keep this limited information in their head.
4 Critical Reasons to Use Spa Cash Flow Forecasting
Reason #1 – Limited data will mess with your head. You need real equations, real numbers from the right sources, and real tracking with spreadsheets. Otherwise, you end up relying on emotion to make your financial decisions. This will always lead you away from the truth of your profitability and into a broke money pit.
Reason #2 – When we don’t use the correct data, we tend to overestimate our revenues and underestimate our expenses. It’s easy to overlook big and small items that can potentially drain bank accounts rather quickly.
Reason #3 – We miss the impact of seasonality. If you’ve been in the biz for a while, you’re familiar with some months being slow & others running everyone off their feet. To minimize/maximize the impact of these waves (managing payroll costs, creating a strategy for stronger revenues rather than knee-jerk reactions, and managing burnout, for example) you need to see what’s coming down the pike. Having a general idea isn’t good enough to pull through another slow season.
Reason #4 - You aren’t aware of the actual cost of running your spa. As a result, your prices and wages are bleeding you dry even though you’re working your butt off. You’ve heard it before: work smarter, not harder…but how? Cash flow forecasting IS the answer. It shines a big ole spotlight on where the holes are in your revenues & compensation and operational expenses.
Numbers don’t lie...they're brutally honest about where you’re leaking money.
But You'll Need More Than A Spreadsheet.
When you get started tracking how your spa money flows in and out of your business, it forces you to confront your lack of knowledge. I'm not going to lie. This can be a painful process.
It’s SO tempting to quit before you finish cash flow forecasting because numbers are NOT your strong suit. In fact, you’ll probably find all sorts of distractions to prevent you from getting serious about your money.
This is why you need to be crystal clear about WHY you are in the spa business at all.
Without a strong connection to the vision of your company, the intertwined emotional relationship between you and your business, the discomfort of learning cash flow will give you plenty of reasons to give up before you get to the gold of forecasting.
The honest truth: if you give up on tracking your cash, you are not completely committed to growing your business.
You need cash flow to survive. Without it, you'll be financially treading water without a life vest for years...until you'll drown. It sounds dramatic because it's true and it's happened to many.
You may already be familiar with the exhaustion.
However, despite the anxiety/worry/pain of getting intimate with your sales and expenses, comes an incredible opportunity… you finally know what questions to ask when you learn how to cash flow forecast.
And when you ask better questions, you get better answers.
Instead of unhelpful questions like…
- Why does the spa never have any money at the end of the month? I’m stuck in this cycle of losing money.
- Why am I always scrounging for enough to cover payroll each week? I’m stuck in the treatment room working to support payroll.
- How to I face another phone call/email from my vendor who’s been calling for my late payments?
- Why is it so hard to motivate my staff to sell more retail? I’m tired of nagging...it doesn’t work anyways.
- I’m drowning in credit card debt because I’ve been using it to run my business. Should I consolidate my loans?
You’ll be proactive asking questions like…
- How can we increase our service sales by 10% each month for the next 6 months? If we can do this systematically for the next 4 months, we’ll be breaking even and on track for profitability by month 6.
- How can I provide a living wage and a future in my company for my team that's win-win for all of us?
- Who do I need to talk to negotiate a payment plan with my vendor? I have a strategy to get caught up within the next 3 months.
- What do we need to do daily in the spa to increase retail sales by 20% per staff member over the next 6 months that empowers the team and generates more income for everyone?
- How much money per month can I put down my credit card debt to reduce it to zero by the end of the year without compromising the quality of the business?
Learning something new, like cash flow forecasting, is never easy, especially when the topic isn’t naturally appealing to you.
I can tell you from personal experience…the pain of learning cash flow forecasting is worth it.
It’s worth the discomfort of numbers swimming in front of your eyes at first because it does get easier and can be exciting to see the plan unfold when you know what you're doing.
It’s worth the extra work at home, after spa hours, digging into the nitty gritty of what you’re truly spending because soon you won't have to work so many hours to generate the revenue your spa needs to thrive.
It’s worth the sinking feeling you’ve been inadvertently irresponsible with your numbers and money because you know with knowledge and focus, you are capable of being an active, responsible leader that is able to take your spa to the next level of success.
It’s worth it because you’ll never have to claim ignorance about the money management of your spa business again…but only if you keep your eye on the cash flow of your company from here on in.
If any of this is hitting a nerve about your spa business, Cash flow forecasting it on the agenda for week two in Cash-Strapped to Cash Flow.